By Brandon Koll | Last Updated 8/16/2025
Buying a house is a goal that a lot of people have, but it may not be the right thing for you or your current situation. Owning a house has a lot of benefits, but it is not all roses, sunshine, and unicorns. If you plan properly and are ready for those unexpected expenses, it can also be great investment. Let’s look at some of the reasons you should rent or keep renting.
Benefits of renting
There are several reasons that renting may be the better option for you. Renting is a good first step when you first move out on your own. Most young people don’t have a large down payment, and they can rent and start saving up until they do. When you are new to a city or town, it is a good idea to rent for a year or so and get to know the area. This can help you identify some areas that you would like to buy in. Maybe you just got married and it could be a good idea to rent for the first year to get used to living with each other and learn what kind of place would work for you when you do buy. These are some good reasons to rent, but there are some negatives to consider.
Negatives of renting
The glaring negative part of renting is the fact that you are paying someone else’s mortgage. In addition to that, if real estate values go up in your area which they often do, you will never see those gains. If you want to make any changes to the place, you will likely not be able to. You are usually locked into a lease and have huge fees if you decide to move out early. These kinds of things can be frustrating, so maybe buying is better for you.
Why buy
Buying a house can be another thing that will help you build wealth. Your payment will slowly increase your equity until you finally pay the place off. In most cases, the value of the house will continue to go up over the years as well. If you want to get a bigger place you can sell your current house and buy a bigger one. If you roll your profits into the new place, you will usually not even have to pay taxes on the gains. What a great deal!
Why to buy small and move up
If you’re ready to buy your first house, remember that you don’t need to buy your dream house. Start with a house that is affordable with your income. It can be used as a steppingstone to the next house. Doing it this way you can continue building your overall equity and down payments as property values go up. You will also get back the principle that you are able to pay down on your loans. If you keep this going, eventually you will make it to your dream house. Hopefully this is long before you decide to downsize.
How much of your income should go to your payment
When you go to get that loan for a house, it is crazy the amount of money a bank will give you. Usually, it will be up to 50% of your net pay. I’ve heard recommendations saying don’t go over 25-30% of you take home pay. To figure this out, you need to know how much your payment will be including property taxes and insurance. Then make sure your full payment is not more than 25-30% of your income.
I would like to share one lesson I learned the hard way. I had bought a new build once and the payment that I was quoted from the bank was way off when it came to property taxes. After a year, my payment increased by over $500 a month because of that. They calculated the property taxes from the lot value versus the house and lot value. Hopefully, this was just one bad company that I was dealing with and not a normal occurrence. Now let’s look at some different loan options.
What loan terms should you look for
There are many different types of loans with different forms of adjustable rates and a fixed rate option. There may be a situation where the adjustable rate is a good option, primarily if interest rates are high and you see them going down. That is too risky for me, just do a fixed rate and re-finance if rates drop. The other major option comes down to 15- or 30-year loans. These are the most common ones available. Always do the 15-year option. The amount of interest paid in the initial years of a 30-year loan won’t put you in a good place for building equity. If you can’t do a 15-year fixed rate loan and stay below 30% of your take home salary, then you are buying too much home for you. Either save up a big enough down payment to get you to that number or find a cheaper place. You can always downgrade to a condo or move further outside of a city to find something more affordable.
Finance Hack – Save up so you can buy a place that is less than 30% of your net income with a 15-year fixed mortgage.
Buying a house is exciting and can be a great experience. Make sure you are ready and not setting yourself up for failure by paying too much. Many people have bought a more expensive house than they should have bought and one emergency or temporary job loss and they are never able to recover. Make sure you do it right!
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